Absolutely Higher Tips; Framing Choice Alternatives in the New Age of Voluntary Payments Economy

Abstract

Modern and gig economy businesses collect voluntary contributions (i.e., tips) from consumers via screen-based payment systems (i.e., $1, $2, $3; 10%, 15%, 20%). The use of these systems has been criticized by the popular media for forcing consumers to leave large tips in contexts where they previously would have left small tips or where tips were not required. The authors employ a multi-method approach, including an analysis of secondary data (N = 51,825), a field experiment (N = 1,810), and laboratory experiments (N = 2,321) to show that an absolute dollar frame (vs. percentages) leads to higher tip payments especially for low bill amounts. These effects are attenuated when (1) absolute options are presented in cents (e.g., $0.50), leading consumers to infer that small tip amounts are acceptable and, (2) absolute options start at high levels. Countering conventional wisdom, the authors further show that open-ended formats can lead to higher tip payments compared to closed-ended response formats in specific conditions. Theoretically, these results add to the behavioral pricing, prosocial behavior, and labor economics literatures. Managerially, the results are relevant for decision makers in the multi-billion-dollar digital service industry.

Keywords: behavioral pricing, nudging, framing, choice architecture, field experiment, voluntary payments

JEL Classification: M31, M30